The declining fortunes of the naira may persist this week due to rising demand for foreign exchange without corresponding increased supply, says Financial Market Dealers Association of Nigeria, FMDA

“Following the high FX demand without corresponding dollar liquidity into the market, Naira

may depreciate further”, the Association said in its weekly review of the financial markets.

Review development in the foreign exchange market last week, the Association said, “The foreign exchange market in the week mirrored last week’s business activities as Naira-Dollar relationship remained mixed at the Inter-bank market, moderated downward marginally at the WDAS and recorded loss at BDC and parallel markets. Depreciation was recorded at all the markets as a result of increase in FX demand relative to its supply.

“Further analysis of the markets showed that Naira depreciated by 15 kobo on Wednesday relative to Monday’s exchange rate and also lost 26 kobo when compared with the corresponding period of the preceding week. At the interbank market, Naira depreciated by 114 kobo relative to its opening rate and dropped 94 Kobo when compared to the corresponding period of the preceding week. The BDC and Parallel markets depreciated by 50 kobo and 100 kobo respectively to close the week at N155.5 and N156.000 per dollar respectively.

“The Central Bank of Nigeria continued to moderate the volume of dollar sold to the authorized dealers to manage the foreign exchange market. At the bi-weekly auction of Monday and Wednesday, it offered and sold $500million as against $617.79million sold last week. Market demand was $676.5million relative to USD$697.2million in the preceding week. The observed market demand was 35.3% higher than amount eventually sold unlike last week where market demand exceeded volume sold by 12.0%. The upsurge in demand relative to limited supply is putting pressure on the strength of Naira.

On development in the interbank money market, FMDA said, “Rates moderated in the week as a result of interaction between placers and takers of fund. Cost of funds moderated downward relative to last week’s closing rate in the first two trading days due to the London debt-buy-back put at N107bn and personnel funds of N71.4 billion. Thereafter, interest rates moderated upwards to close the week on a high note.

A cursory analysis revealed that Overnight/Call dropped to 8.25%, 7days 9.1250%, and 30days 10.7500% as a result of London debt-buy-back worth N 107 billion and personnel fund of N71.4 billion. It trended further down on the second trading day across board as a result of the existing liquidity and cash call from oil companies.

On Wednesday, rate increased marginally except 60, 90 & 180 days tenors, due to the withdrawal vide OMO Subscription, WDAS funding and other sundry outflows. On Thursday, rates further moderated upwards owing to the reduced Naira liquidity in the market. On the last trading of the week, Call/Overnight recorded sharp increase; while other observed tenors rose above Thursday’s rates owing to the provisioning for NNPC’s gradual withdrawal from the system. The secured (OBB) closed the week at 8.50% for Banks and 8.08% for Dicount Houses reflecting illiquidity in the market.